Unit 2: GDP & GNP 1/27/17

GDP

GDP (Gross Domestic Product): Total value of all final goods & services produced w/in a country's borders in a given year.

• Includes all production or income earned w/in the US by US and foreign producers.
• Excludes production outside of the US, even by Americans.

GDP Formula= C + Ig + G + Xn

C: Consumption (67%)

Ig: Gross Private Domestic Investment (18%)

• Factor equipment maintenance
• New factor equipment
• Construction of housing
• Unsold inventory of products built in a year

G: Government purchases (17%)

Xn: Net Exports (Exports-Imports) (-2%)

Included in GDP:

• C
• Ig
• G
• Xn

Excluded in GDP:

• Intermediate goods -Avoid double or multiple counting
• Used or secondhand- Avoid double or multiple counting
• Stocks & Bonds- No production
• Unreported business activity (Ex: Tips)
• Gifts/Transfer Payments(Public/Private)- Ex: Scholarship, social security, unemployment
• Illegal activities
• Non-market activities- Ex: Volunteering, Babysitting

GNP

GNP (Gross National Product): Total value of all final goods & services produced by Americans in a given year.

• Includes production or income earned by Americans anywhere in the world.
• Excludes production by non-Americans, even in the US.

GNP Formula:

GDP + Net Foreign Factor Payment

GNP LINK:http://www.auburn.edu/~johnspm/gloss/GNP

Unit 2: Circular Flow 1/26/17

Circular Flow model: Represents the transactions in an economy by flows around a circle.

Household: A person or group of people that share an income.

Business/Firm: An organization that produces goods & services for sale.

Unit 1:Excess Demand & Excess Supply 1/20/17

Excess Demand:

Quantity demanded is greater than quantity supply (QD>QS), shortage.

Shortage: Consumers cant get the quantities of items they desire.
Price Ceiling: Occurs when the government put a legal limit on how high the price of a product can be.
Ex: Rent Control

Equilibrium:

The point at which the supply curve and the demand curve intersect.

Excess Supply:

Quantity supply is greater than quantity demanded (QS>QD), creates a surplus.

Surplus: producers have inventories they cannot get rid of.

Price Floor: Lowest legal price a commodity can be sold at. Used by the government to prevent prices from becoming too low.

Ex: minimum wage

Business Cycles:

1. Expansion
2. Peak
3. Contraction/Recession
4. Trough

• 1 cycle is from trough to trough
• Average cycle is 5 to 7 yrs
• Recessions last about 14 months
• Peaks & troughs are meaningless because we never know we are in one until it's over.
• Trough means the end of recession
• If a recession loses more than 10% of real GDP, then it's a depression.

Unit 1:Elasticity of Demand 1/11/17

Elasticity of Demand: A measure of how consumers react to a change in price.
Total Revenue: Total amount of money a company receives from selling services.
Marginal Revenue: Additional income from selling one more unit of a good.
Fixed Cost: A cost that does not change no matter how much of a good is produced.
Variable Cost: A cost that rises or falls depending upon how much is produced. Ex: Electricity Bill

Elastic Demand:

• Demand that is very sensitive to a change in price
• Product is not a necessity
• There are available substitutes
• Ex: Soda, steaks, fur coats
• E > 1

Inelastic Demand:

• Demand that is not very sensitive to a change in price
• Product is a necessity
• There are few or no substitutes
• Ex: Gas, sugar
• E < 1

Unitary Elastic:

• E = 1

Price Elasticity of Demand:

Step 1: Quantity

New Q - Old Q

        Old Q

Step 2: Price

New P - Old P

       New P

Step 3: PED

 % change in quantity

 % change in price

Supply Problem Formulas:

TFC+TVC=TC

AFC+AVC=ATC

TFC/Q=AFC

TVC/Q=AVC

TC/Q=ATC

AFC*Q=TFC

AVC*Q=TVC

TC-TFC=TVC

NEW TC-OLD TC= MC

Unit 1: Production Possibilities Graph 1/4/17

PPG: Shows the alternative ways  to use an economy's resources
Efficiency: Using resources in such a way to maximize the production of goods and services. Increases profits.
Under utilization: Opposite of efficiency. Using fewer resources than an economy is capable of using. Leads to decreased profits.
Law of Increasing Opportunity Cost: When resources are shifted from making one good or service to another, the cost of producing a second item increases.

• Point D (on the curve)- Attainable & efficient
• Point A (inside the curve)- Attainable, but inefficient. Under utilization, unemployment or underemployment of resources.
• Point X (outside the curve)- Unattainable using current resources. Technology, Economic Growth.

Four Key Assumptions:

1. Only 2 goods can be produced

2. Full employment of resources

3. Fixed resources (factors of production)

4. Fixed Technology

Three types of movements that occur within the PPG:

   1. Inside the curve
 2. Along the PPC



 3. Shifts of the PPC

Two types of Efficiency

Productive Efficiency:

• Products are being produced in the least costly way
• This is any point ON the production possibilities curve

Allocative Efficiency:

• The products being produced are the ones most desired by society
• This optimal point on the PPC depends on the desires of society

Unit 1:Basic Concepts of Economics 1/3/17

Basic Concepts of Economics

1. Macroeconomics: study of the economy as a whole
    Microeconomics: study of individual or specific units of the economy, supply and demand

2. Positive economics:

• Claims that attempt to describe the world as is
• Descriptive in nature and fact-based

Normative economics:

• Claims that attempt to prescribe how the world should be
• Opinion-based

3. Needs: Basic requirements for survival

    Wants: Desires

4. Scarcity:

• Fundamental economic problem that all societies face
• How to satisfy unlimited wants with limited resources

   Shortage: Quantity demanded exceeds quantity supply 

5. Goods: Tangible commodities

• Capital Goods: Items used in the creation of other goods
• Consumer Goods: Intended for final use by the consumer

   Services: Work that is performed for someone. (ex: entertainment)

Factors of Production:

1. Land- Natural resources

2. Labor- Work exceeded

3. Capital

• Human Capital: when people acquire skills & knowledge through experience and education.
• Physical Capital: Money, tools, machinery

4. Entrepreneurship- Risk taking, take first three factors for promotion. 

Trade-offs: Alternative that we sacrifice when we make a decision

Opportunity Cost: Next best alternative

Guns or Butter: Refers to the trade-offs that a country faces when choosing whether to produce more or less of military goods or consumer goods.

Thinking about the Margins: deciding whether to add or subtract one additional unit of some resource.